by As cooling inflation brings much-needed relief to consumers, many car owners are in for a rude awakening when insurance renewals come this year, a new report has found.
Auto insurance rates are expected to increase 8.4% across the United States in 2023, the biggest rate increase in six years, according to the report by research firm ValuePenguin.
The average cost of full coverage auto insurance is expected to be $1,780 per year, but prices will vary dramatically between states, the report found.
In Michigan, the state with the highest average price, car insurance will cost $4,788 a year. In Vermont, the state with the lowest average price, car insurance will cost $1,104, the report said.
Car owners in 45 states will see their prices increase by at least 1%, with prices jumping the most in Illinois, Arizona and New Hampshire, the report said. The states that will experience a rate increase of less than 1% include California, Hawaii, Vermont and Wyoming.
Auto insurers Geico, Progressive and State Farm did not immediately respond to a request for comment.
The significant nationwide price jump is due to a return to driving patterns that resemble pre-pandemic life, as many workers return to offices and families resume travel, said Divya Sangam, an insurance spokeswoman at LendingTree, the parent company of Value Penguin.
“When more people drive, you have more accidents and a higher claim volume, and that increases insurance rates,” Sangam told ABC News.
The impact of an elevated claims volume has been compounded by the increased cost of auto repairs as a supply chain bottleneck continues to drive up the cost of auto parts. Labor shortages are also driving up labor costs, Cate Deventer, an insurance writer and editor at Bankrate, told ABC News.
Meanwhile, an increase in medical costs has increased the amount that insurance companies pay to cover accident-related injuries, she added.
“Inflation hits everything across the board,” Deventer said. “It drives up the cost of injuries.”
New trucks are seen at a dealership on September 23, 2022 in Long Beach, California.
Eric Thayer/Getty Images, FILE
The price of a new car has risen by nearly 8% in the past year, while the cost of tires and auto parts has increased by more than 10%, government data show.
The pandemic price pressure linked to demand and lack of supply comes about three years after the outbreak of the coronavirus. The average car insurance rate jumped just 1.3% last year, the report found.
“We were surprised that it took so long for premiums to increase,” Sangam said. – This has been a little delayed.
The prevalence of extreme weather events constitutes another key driver of the insurance price increase, Sangam said.
“With climate change, the biggest story tends to be around homes being destroyed,” she said. “But in reality, when there’s a massive flood, like in California right now, cars are destroyed. And with weather damage, we’re talking about cars being totaled.”
The rise of electric vehicles has also contributed to the price increase, as insurance costs are about 28% more for electric vehicles than gas-powered vehicles, the report said.
The financial pain for car owners is likely to prove temporary, Sangam said, predicting that price increases would moderate in the coming years as inflation softens further and the cost of auto parts falls.
“It’s not going to rise at the same rate it has this year,” she said.
Deventer warned that a reduction in interest rate increases next year will depend on the bottlenecks in the supply chain becoming smaller and a further cooling of inflation.
“It’s hard to say because we don’t know what’s going to happen with the economy,” she said.
